Report

On
The Indian brokerage Industry
Submitted To:

Prof. Ravi Gupta

Banking systems
Faculty, JIML

Submitted By:

Aakriti Agarwal
Neha Chhabra (cft08_079)
Pooja srivastava(cft08_098)
Prashant saxena(cft08_102)
Priyanka arya (cft08_104)
Shivika Gaur

Submitted On:
 ACKNOWLEDGEMENT

As any good work is incomplete without acknowledging the

people who made it possible, this report is incomplete without
thanking the people without whom this project wouldn't have
taken shape.

This project is a result of continuous cooperation, effective

guidance and support from all the people associated with this
project.

We would like to express our regards and thanks to Prof. Ravi

Gupta, our mentor of “Banking Systems”, for giving us the
opportunity to work on this project and learn something new. We
are indebted to him for clarifying our concepts by sharing his
valued experience in teaching, research and training which have
thereby become an unconscious part of our ideas and thoughts
while analyzing the brokerage industry.

A special thank to the Almighty for giving us the opportunity and

strength to complete this project.

Lastly we would like to thank our families and friends for their
continuing support, blessings and encouragement.
 Executive Summary
This report analyzes the Indian retail brokerage industry taking into account the health of the
capital markets and the intensity of competition among the brokerage companies. Michael
Porter's Five Forces Analysis has been employed to present a picture to gain an understanding of
the competitive landscape and industry attractiveness. It covers important segments of the
industry and analyses market dynamics.

A differentiating aspect of this report is a comparative assessment of the top brokerages firms on
various value indicators.

The report also includes a comparative product grid of the companies under consideration.

The major growth drivers for brokerage revenue and trading volume are:

• Continuous fall in brokerage fees

• Adoption of technology — screen-based trading, electronic matching, and paperless

securities

• Centralized operations, effective risk management, and control on large interconnected

operations spanning multiple locations, which is enabled by telecom connectivity and low
costs

• Increasing access to capital and the ability to provide margin finance

Though the Indian brokerage industry has been consolidating steadily over the last 10 years, the
share of the top 10 brokers has risen to only around one-fourth of the total industry revenues. In
this fragmented market, leading players like ICICI Direct, Kotak Securities, Indiabulls,
Sharekhan, and 5 Paisa, apart from many small players, compete on the basis of low brokerage
fees and customer service

Buoyed by the bullish Indian stock market, foreign banks such as Société Générale (SocGen),
BNP Paribas, Standard Chartered, and Macquarie Bank (Australia) are eyeing stakes in Indian
retail brokerages.

The major growth drivers of the Indian retail brokerage industry are the increasing appetite for
equities among investors as an asset class, the convenience of online trading, and declining
brokerage fees
 OVERVIEW
The Indian retail brokerage industry consists of companies that primarily act as agents for the
buying and selling of securities (e.g. stocks, shares, and similar financial instruments) on a
commission or transaction fee basis.
It has two main interdependent segments: Primary market and the Secondary market.

Evolution of the Indian Brokerage Market

The Indian broking industry is one of the oldest trading industries that had been around even
before the establishment of the BSE in 1875. Despite passing through a number of changes in the
post liberalization period, the industry has found its way towards sustainable growth. The
evolution of the brokerage market is explained in three phases: pre1990, 1990-2000, post 2000.

Early Years

The equity brokerage industry in India is one of the oldest in the Asia region. India had an active
stock market for about 150 years that played a significant role in developing risk markets as also
promoting enterprise and supporting the growth of industry.

The roots of a stock market in India began in the 1860s during the American Civil War that led
to a sudden surge in the demand for cotton from India resulting in setting up of a number of joint
stock companies that issued securities to raise finance. This trend was akin to the rapid growth of
securities markets in Europe and the North America in the background of expansion of railroads
and exploration of natural resources and land development.

Bombay, at that time, was a major financial centre having housed 31 banks, 20 insurance
companies and 62 joint stock companies.

In the aftermath of the crash, banks, on whose building steps share brokers used to gather to seek
stock tips and share news, disallowed them to gather there, thus forcing them to find a place of
their own, which later turned into the Dalal Street. A group of about 300 brokers formed the
stock exchange in Jul 1875, which led to the formation of a trust in 1887 known as the “Native
Share and Stock Brokers Association”.

A unique feature of the stock market development in India was that that it was entirely driven by
local enterprise, unlike the banks which during the pre-independence period were owned and run
by the British. Following the establishment of the first stock exchange in Mumbai, other stock
exchanges came into being in major cities in India, namely Ahmedabad (1894), Calcutta (1908),
Madras (1937), Uttar Pradesh and Nagpur (1940) and Hyderabad (1944). The stock markets
gained from surge and boom in several industries such as jute (1870s), tea (1880s and 1890s),
coal (1904 and 1908) etc, at different points of time.

Beginning of a new equity culture

A new phase in the Indian stock markets began in the 1970s, with the introduction of Foreign
Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational
companies, which created a surge in retail investing. The early 1980s witnessed another surge in
stock markets when major companies such as Reliance accessed equity markets for resource
mobilisation that evinced huge interest from retail investors.

A new set of economic and financial sector reforms that began in the early 1990s gave further
impetus to the growth of the stock markets in India. As a part of the reform process, it became
imperative to strengthen the role of the capital markets that could play an important role in
efficient mobilisation and allocation of financial resources to the real economy. Towards this
end, several measures were taken to streamline the processes and systems including setting up an
efficient market infrastructure to enable Indian finance to grow further and mature. The
importance of an efficient micro market infrastructure came into focus following the incidence of
market abuses in securities and banking markets in 1991 and 2001 that led to extensive
investigations by two respective Joint Parliamentary Committees.

The Securities and Exchange Board of India (SEBI), which was set up in 1988 as an
administrative arrangement, was given statutory powers with the enactment of the SEBI Act,
1992. The broad objectives of the SEBI include

• to protect the interests of the investors in securities

• to promote the development of securities markets and to regulate the securities markets

The scope and functioning of the SEBI has greatly expanded with the rapid growth of securities
markets in India in the last fifteen years.

Following the recommendations of the High Powered Study Group on Establishment of New
Stock Exchanges, the National Stock Exchange of India (NSE) was promoted by financial
institutions with an aim to provide access to investors all over the country. NSE was incorporated
in Nov 1992 as a tax paying company, the first of such stock exchanges in India, since stock
exchanges earlier were trusts, being run on no-profit basis. NSE was recognized as a stock
exchange under the Securities Contracts (Regulations) Act 1956 in Apr 1993. It commenced
operations in wholesale debt segment in Jun 1994 and capital market segment (equities) in Nov
1994. The setting up of the National Stock Exchange brought to Indian capital markets several
innovations and modern practices and procedures such as nationwide trading network, electronic
trading, greater transparency in price discovery and process driven operations that had significant
bearing on further growth of the stock markets in India.

Faster and efficient securities settlement system is an important ingredient of a successful stock
market. To speed the securities settlement process, The Depositories Act 1996 was passed that
allowed for dematerialisation (and rematerialisation) of securities in depositories and the transfer
of securities through electronic book entry. The National Securities Depository Limited (NSDL)
set up by leading financial institutions, commenced operations in Oct 1996. Regulations
governing selection of various types of market intermediaries as depository participations were
made. Subsequently, Central Depository Services (India) Limited promoted by Bombay Stock
Exchange and other financial institutions came into being.
Rapid Growth

The last decade has been exceptionally good for the stock markets in India. In the back of wide
ranging reforms in regulation and market practice as also the growing participation of foreign
institutional investment, stock markets in India have showed phenomenal growth in the early
1990s. The stock market capitalization in mid-2007 is nearly the same size as that of the gross
domestic product as compared to about 25 percent of the latter in the early 2000s. Investor base
continued to grow from domestic and international markets. The value of share trading witnessed
a sharp jump too. Foreign institutional investment in Indian stock markets showed continuous
rise reaching about USD10 bn in each of these years between FY04 to FY06. Stock markets
became intensely technology and process driven, giving little scope for manual intervention that
has been the source of market abuse in the past. Electronic trading, digital certification, straight
through processing, electronic contract notes, online broking have emerged as major trends in
technology. Risk management became robust reducing the recurrence of payment defaults.
Product expansion took place in a speedy manner. Indian equity markets now offer, in addition
to trading in equities, opportunities in trading of derivatives in futures and options in index and
stocks. ETFs are showing gradual growth. Within five years of introduction of derivatives,
Indian stock markets now are ranked first in stock futures and fourth in index futures. Indian
stock markets are transaction intensive and thus rank among the top five markets in this regard.
Stock exchange reforms brought in professional management separating conflicts of interest
between brokers as owners of the exchanges and traders/dealers. The demutualisation and
corporatisation of all stock exchanges is nearing completion and the boards of the stock
exchanges now have majority of independent directors. Foreign institutions took stake in India’s
two leading domestic stock exchanges. While NYSE Group led consortium took stake in the
National Stock Exchange, Deutsche Borse and Singapore Stock Exchange bought equity in the
Bombay Stock Exchange Ltd.
 Indian Brokerage Industry
India in Global Markets
The stature and significance of India is growing in the world capital markets. India is not only
attracting greater interest from world markets, but is also assuming increasing importance in
global finance.

• India is a major recipient of foreign institutional flows amongst the emerging markets.
Since the opening up of domestic stock markets to foreign investors, cumulative net FII
investments reached Rs 517 Bn by 2008 end.
• India is major destination of private equity flows into the emerging markets
• India was host to the annual meetings/conference of the World Federation of Exchanges
(2005) and International Organization of Securities Commission (IOSCO) (2007)
• India emerged a trillion dollar market capitalisation market in 2007, and was among the
top 10 stock exchanges in the world in terms of market capitalisation
• India is amongst the top fifteen stock exchanges in the world in respect of equity turnover
• India emerged as a leading player in commodities futures market
• India is amongst the top five in the number of transactions
• India is among the top five in respect of volume traded in Stock Index Futures and Stock
Futures
• India is one of the few markets with extensive dematerialisation of shares
• India’s T+2 securities settlement cycle is at par with the global standards
• Indian stock markets have the largest number of listings, with trading taking place in
about 2,500-3,000 stocks
• India’s most popular stock index (Sensex) is constructed on the basis of full float
methodology, one of the firsts in the Asian region and a global standard
• Indian market indices such as Sensex and CNX Nifty are listed in foreign exchanges for
trading as ETFs.

The year that was(2008)…

 Secondary market trading volumes down 33% YoY
 FII outflows of ~USD 12 bn
 Nifty down ~36%
 Advisory transactions stable though some ground lost
 PE deals had fallen to almost half
 ECM activity down ~90%
 DCM relatively stable, though activity level were lower in second half of the FY08 due to
liquidity crunch and counterparty fears
Recent Trends (2009)…
 Global risk aversion is unwinding and Confidence levels returning, being reflected in
performance of the indices
 Liquidity and credit flows improving
 Political stability and India re-rating
 FII and Domestic Flows resuming, USD 7bn FII inflow in April & May
 Secondary volumes showing early signs of uptrend, average daily volumes of Rs 800 bn
vs. 620 bn in previous year
 Various important measures taken by the Indian Government to improve the
condition of Indian stock market.
Measures
Allow foreign institutional
investors to invest in equity
and debt markets
Expanding the product range
offered by the stock
exchanges
Allowing Indian companies to •
issues ADRS and GDRS
Allow Indian nationals and
companies to invest abroad
Divestment of government
ownership
Strengthening of institutional
framework in primary and
secondary markets
Demutualization
Objective Status
Liberalization of stock • Foreign investment up to 49% will be
market to attract foreign allowed in these companies with a
investment in order to separate FDI cap of 26% and FII cap of
boost economic growth. 23% after approval from FIPB
• Outstanding limit for FII investment in
debt securities raised from USD1.75 bn to
USD2.0 bn and the same for the corporate
debt raised from USD0.5 bn to USD1.5 bn
Bring Indian market at SEBI approved new derivative products :
par with the mini-contracts on equity indices, options with
international standards longer life/tenure, volatility index and F&O
and diversify product contracts, Options on Futures, Bond Indices
portfolio. and F&O contracts, Exchange-Traded
Currency (Foreign-Exchange) Futures and
Options and Exchange Traded products to
cater to different investment strategies
Facilitate market • Mutual funds were allowed to invest in
integration and give ADRs/GDRs and foreign securities within
freedom to the the overall limit of USD4 bn
companies. • Venture capital funds were allowed to
• Access to more invest in foreign securities
funds for investment • Guidelines on issue of Indian Depository
Receipts (IDRs) were issued
Facilitate growth Providing minimum public shareholding of
through privatization 25% in all listed companies
• To ensure • SEBI permitted listed companies to send
transparency abridged annual report to the shareholders
• Investor protection • Exclusive email ID to be given by the
• Provide a standard primary market intermediaries for
framework for registering investor complaints
operations • Stock exchanges advised to update the
• Deregulation applicable VAR margin rates at least five
• Reduces the conflict times in a day
of interest
• SEBI approved and notified the
Corporatization and Demutualization
Schemes of 19 stock exchanges
BSE and NSE to set up and
maintain corporate bond
reporting platforms
Making PAN compulsory
Transactions necessarily
settled through the clearing
corporations/clearing house
Permit Gold Exchange Traded
Funds
Introduction of mutual fund
schemes
To capture all • BSE and NSE began maintaining a
information relating to reporting platform for corporate bonds.
trading. • BSE and NSE jointly launched a common
Investor protection portal at www.corpfiling.co.in to
disseminate filings made by companies
listed in both the exchanges.
Strengthening KYC PAN made compulsory for all categories of
(Know Your Client) investors for opening a DEMAT account with
effect from Apr 1, 2006
Investor protection and It was made mandatory.
greater control.
Generate options for SEBI allowed the launch of Gold Exchange
companies and investors Traded Funds (GEFTs)
Minimize risk for • Mutual funds were allowed to invest in
investors and ensure ADRs/GDRs and foreign securities within
returns. the overall limit of USD4 bn
• Mutual fund trustees are required to
certify that the scheme approved by them
is a new product and is not a minor
modification of an existing
scheme/product
• SEBI Mutual Fund regulations were
amended so as to permit the launch of
Capital Protection Oriented schemes
• SEBI directed MFs to dispatch statement
of accounts to unit holders under
SIP/STP/SWP on every quarter.
1. Macro-Economic Scenario
The Indian economy, which witnessed robust growth up to the second quarter of FY09, recorded
sharp deceleration thereafter in the wake of persistent global economic slowdown. India's real
GDP grew 6.7% during Financial Year (FY) 09 as compared with 9% during the corresponding
period of FY08. Though India's growth trajectory has been impacted both by the financial crisis
and the global economic downturn, the structural drivers of the Indian economy continue to be
intact, sustaining overall growth at a level much higher than most other economies in the world.

2. Capital Markets

Index Movement

The BSE Sensex saw an unprecedented swing in Calendar Year (CY) 08 - from 20,873 in
January 2008 to 8,451 in November 2008. The key negatives that drove down Indian markets
were weakness in global financial markets, slowdown in the domestic economy, tight monetary
policy in 1 HFY09, and heavy selling by Foreign Institutional Investors (FII). All these factors
contributed to a series of large downgrades in corporate sector earnings. Another highlight of
FY09 has been a 27% depreciation in the Indian rupee v/s the US dollar, which has also had a
negative impact on earnings.

FII & MF Activity in Equity Markets

FY09 was the first fiscal in India's history when FIIs were net sellers in Indian equities;
secondary market FII outflows for the year were Rs. 479 billion. Interestingly, FY08 was the
year of record net FII inflows of Rs. 517 billion. However, mutual funds continued to be net
buyers for the sixth consecutive year. In FY09, mutual funds were net buyers to the tune of Rs.
66 billion, which is a 52% drop from Rs. 137 billion of net buying in FY08.
3. Broking Industry

Equity Market Volumes:

The average daily equity market volumes for FY09 were Rs. 612 billion, down 16% from Rs.
726 billion in FY08. However, during the six years beginning FY03, the year when cash and
derivatives were fully active on both the exchanges, total market volumes have grown by 50%
compounded annually. During this period, volumes in the derivatives and cash segments have
grown at a compounded annual growth rate (CAGR) of 72% and 27%, respectively. The notable
trends in customer segmental volume mix that influence market volumes are as follows:

1. The contribution of retail volumes has declined from 61% in FY08 to 55% FY09; the
retail contribution ratio has been more volatile than the other two market segments.

2. The contribution of institutional volumes, i.e. volumes from FII and domestic
institutional investors (DIIs) such as mutual funds, banks and insurance companies has
remained stable at 15% for FY08 and FY09.

3. The contribution of proprietary volumes, which include arbitrage and other proprietary
volumes of stock brokers, has increased from 24% in FY08 to 30% in FY09.
Growth in average daily volumes on the NSE & BSE from FY03 to FY09 (Rupees in billions)

Source: NSE & BSE

Segmental mix of total volumes (NSE & BSE combined)

 Source: NSE & BSE

Demat Accounts

Increasing Equity penetration by growth in demat accounts (in millions)

Source: CDSL & NSDL

Note:

1. Number of demat accounts in million

2. FY09 figure includes figures of NSDL as on 31 March 2009 and figures of CDSL as on 28
February 2009
3. All the above numbers indicate active accounts except of CDSL for the period between FY00
to FY05, which are total number of demat accounts with CDSL .The number of demat accounts
in the country shows the depth of equity penetration. CDSL and NSDL together have over 15
million active demat accounts.

4. Investment Banking

M&A and Private Equity

The CY 2008 saw a decline in total deal activity in terms of volume and value of deals both in
the Mergers and Acquisitions (M&A) and Private Equity (PE) space. However, the volume and
value of deals for both M&A and PE were higher in CY08 than in CY06. Also, the average deal
size for both M&A and PE was larger in CY08 than in CY06.

The key highlights of the deal activity are as follows:

1. The total value of deals (M&A and PE) announced during CY08 was US$42
billion

2. The average deal size during the year was US$68.17 million for M&A and
US$33.93 million for PE

3. There were 766 deals (M&A and PE) during CY08 Value of different types of
deals during CY06, CY07 and CY08 (Rupees billion)

Source: Grant Thornton Deal Tracker 2008

Fund raising activity by companies:

Corporate India raised Rs. 3.21 trillion in CY08 through debt and syndicated loans and offerings
in equity capital markets - a 19% drop in the amount raised compared to the Rs. 3.96 trillion in
CY07.
Debt & Syndicated loans 2008 - Size Rs. 2657 billion
Equity Capital Markets 2008 - Size Rs.549 billion

Source: Bloomberg League Tables, Prime database, internal calculations.

Indian companies raised equity of Rs. 549 billion in CY08 through IPOs, QIPs, additional
offerings and rights issues and other equity offerings - a decrease of 48% compared to CY07.

A total of 34 companies raised funds through IPOs in the domestic stock markets in CY08
amounting to Rs. 183 billion - a 46% drop compared to the Rs. 338 billion raised from 89 IPOs
in CY07.

The proceeds from rights offerings increased significantly from Rs. 80 billion in CY07 to Rs.
297 billion in CY08. This accounts for 54% of the total funds raised in domestic equity capital
markets in CY08.
Market Size and Characteristics

Markets

In tune with the global stock markets that began to recover from the second half of 2003; Indian
stock markets too witnessed rapid growth. India’s two leading indices, the most popular BSE
Sensex, and the one most used by the markets the National Stock Exchanges’ S&P CNX Nifty
rose to record levels. Both primary and secondary market activity experienced sharp surge. Much
progress was made in further strengthening and streamlining risk management, market regulation
and supervision. A few aspects of the major developments in the India’s stock markets are
described below.

1. Market Structure

Indian securities market is fairly large as compared to several other emerging markets.
Institutional Structure of the Indian Stock market.

Market Intermediaries 2008

Stock Exchanges(Cash Market) 19

Stock Exchanges(Derivatives 2
Market)
Brokers(Cash Segment) 9487

Corporate Brokers (Cash Segment) 4190

Sub-brokers (Cash Segment) 44074

Brokers(Derivatives) 1442

Foreign Institutional Investors 1319

Custodians 15

Depositories 2
Depository Participants 654

Merchant Bankers 155

Bankers to an Issue 50

Underwriters 35
Debenture Trustees 28

Credit Rating agencies 5

Venture Capital Funds 106

Foreign Venture Capital Investors 97

Registrars to an Issue &Share 76

transfer Agents
Portfolio Managers 205

Mutual Funds 40

Collective Investment Schemes 0

Source: SEBI statistics handbook 2008

Capital Market
Players
Individual Clients (Broking and
Distribution) (60)

Asset Management (Traditional and

alternative) (20)

Investment Banking (Advisory, ECM)

(12)

Institutional Equities (Equities &

Derivatives) (20)

Others (Treasury, Financing, Trading

etc.)
(25)

~INR 140 bn

Figures in brackets indicate revenue size in INR

bn
 Source: Edelweiss Capital – Investor Presentation

Exchange-wise Brokers and Sub-Brokers in Indian Stock Exchanges

Stock Brokers Sub Brokers % Corporate

Exchange Brokers
Ahmedabad 317 119 48
Bangalore 256 156 49
Bombay 840 10691 79
Bhubaneshwar 219 17 9
Calcutta 962 88 21
Cochin 434 42 18
Coimbatore 135 22 36
Delhi 375 343 57
Gauhati 110 4 4
Hyderabad 304 199 40
Inter Connected 788 3 36
Jaipur 507 34 4
Ludhiana 293 38 29
Madhya 174 5 20
Pradesh
Madras 182 115 39
Magadh 198 3 11
Mangalore 66 1 14
National SE 1014 11359 91
OTCEI 769 19 76
Pune 192 161 30
Saurashtra 426 20
Kutch
UPSE 463 19 20
Vadaodara 311 41 21

Source: Securities and Exchange Board of India

2. Market indicators

Market Capitalization(Rs bn)

As at End-March NSE BSE
1997 4193.67 5051.37
1998 4815.03 6302.21
1999 4911.75 6195.32
2000 10204.26 9128.42
2001 6578.47 5715.53
2002 6368.61 6122.24
2003 5371.33 5721.97
2004 11209.76 12012.06
2005 15855.85 16948.28
2006 28132.01 30221.69
2007 3367350 3545041
2008 4858122 5138014
Source: Handbook of Statistics SEBI

Number of Accounts Added in 2008

Equity Broking Companies Accounts

Indiabulls Securities Limited 238546
Reliance Money Limited 203538
Bonanza Portfolio Limited 38639
Angel Broking Limited 105076
Motilal Oswal Securities Limited 103000
Marwadi Shares & Finance Private 65635
Limited
India Infoline Limited 52773
Anand Rathi Securities Limited 52525
Jhaveri Securities Private Limited 50000
Karvy Stock Broking Limited 48430
Asit C Mehta Investment Intermediates 39390
Limited
Networth Stock Broking Limited 38639
Emkay Share & Stock Brokers Limited 28276
Unico Financial Intermediaries Private 27000
Limited
Anagram Securities Limited 26460
India Capital Markets Private Limited 23500
 Equity Trading

Name of the Firm Revenue (%)

Brics Securities 85%
Ashika Stock Broking 85%
Motilal Oswal 80%
Arihant Capital Markets 79%
Dalal & Broacha 70%
A F N Langrana Shares 70%
K R Choksey 70%
Zen Securities 65%
Indiabulls 60%

Derivatives Trading

Name of the Firm Revenue (%)

India Advantage Securities 87%
Crimson Financial 80%
Dolat Capital 60%
Kantilal Chhaganlal 59%
Kunvarji Finstock 59%
R Wadiwala 43%
Angel Broking 43%

Arbitrage

Name of the Firm Revenue (%)

Anand Rathi 8%
Indiabulls 7%
Reliance Money 6%
K R Choksey 4%
Motilal Oswal 3%

Source: Dun & Bradstreet report: ‘India’s Leading Equity Broking Houses’
 Major players

Comparative Financials
Rs. Crore Rs. Crore Rs. Crore
Company Name Total PAT Net
income worth
Apollo Sindhoori Capital Invsts. Ltd. 122.03 21.59 45.1
Arihant Capital Markets Ltd. 61.24 14.18 39.07
Bajaj Capital Insurance Broking Ltd. 26.05 2.87 6.99
Brics Securities Ltd. 68.01 48.89 111.78
Edelweiss Securities Ltd. 384.97 186.44 258.24
Emkay Global Financial Services Ltd. 131.79 23.5 132.26
Geojit B N P Paribas Financial Services Ltd. 208.52 48.23 233.61
India Infoline Ltd. 672.45 128.69 989.85
Indiabulls Securities Ltd. 628.31 248.66 364.02
L K P Securities Ltd. 59.06 3.46 15.66
Motilal Oswal Financial Services Limited. 34.79 17.18 399.92
Networth Stock Broking Ltd. 54.22 3.05 53.89
Reliance Capital Ltd. 952.76 1039.23 5926.97
Religare Commodities Ltd. 32.31 0.88 4.93
Total 3436.51 1786.85 8582.29
Performance Highlites
1. Edelweiss Securities Ltd.

Segment sales (net)

Agency Business 370.29

Capital Based Business 140.16

2. Indiabulls Securities Ltd.

Segment sales

Broking & Related Activities 618.05

Others 0.59

3. India Infoline Ltd.

Segment sales ( Net)

Commodities Brokerage & Related 3.57

Equity Brokerage & Related Income 156.36

Financing & Investing Income 105.49

Life Insurance Agency Income 0.65

Marketing & Online Media 3.09

4. Motilal Oswal Financial Services Ltd.

Segment sales (net)

Equity Broking & Other Related Activities

(Consolidated) 593.68

Financial Activity (Consolidated) 35.58

Investment Banking (Consolidated) 62.82

5. Reliance Capital Ltd.

Segment Sales (Net)

Asset Management (Consolidated) 472.92

Consumer Finance (Consolidated) 394.58

Finance & Investments (Consolidated) 1742.76

General Insurance (Consolidated) 2346.12

6. Religare Enterprises Ltd.

Segment sales

Financial Advisory Services 1.13

Investment Operations 30.73

 PRODUCT GRID FOR BROKERAGE INDUSTRY

Product grid comprises of all the products offered by brokerage or securities industry. This
industry is one of major emerging industry in the country as it helps in dealing with various
financial aspects which help in building a good financial portfolio for an individual or corporate.
Product grid, in simpler terms, can be explained as the whole basket of products offered by
brokerage industry to its customers. This can further be explained by taking various companies
operating in this sector and thereby comparing the products offered by these companies.

Motilal Relianc Karvy India Kotak India Ge- Birla Share Sunda
Oswal e Bulls Securit Infoline Capit Global Khan ram
Money ies al Finance Financ
e

Equities Y Y Y Y Y Y Y Y Y Y

Derivatives Y Y Y Y Y Y Y Y Y Y

Margin Y N N N N N N Y N N
funding

Depository Y Y Y Y Y N N N Y Y
services

Portfolio Y Y Y Y Y Y Y Y Y Y
mgt

Commoditi Y Y Y Y N Y Y N Y Y
es trading

Wealth mgt Y N N N N Y Y N N Y

Research Y N N Y Y Y Y N Y N

Mf Y Y Y Y Y Y N Y Y Y

Structured N Y N N Y N Y N N N
products

Third party N Y Y N Y N Y N N N
products

Insurance N Y Y N N Y N N N Y

Real estate N Y Y N N N Y Y N Y

Tax N Y N N N N Y N N N
planning

Off-shore N Y N N N N N N N N
investment
s

e-broking Y Y N N Y N N N N N

Mortgages N N Y N Y Y N N N N

IPO Y Y N Y Y Y N Y Y Y

Loans N N Y N Y Y Y Y N N

BPO N N Y N N N N N N Y

KPO N N Y N N N N N N N

Bonds N N Y N N N Y N N N

Promoter N N Y N N N N Y N N
financing

Buy-back N N Y N N N N Y N N
financing

ESOP N N N N N N N Y N N
financing

Retail N N Y Y N N Y N N Y
financing

Corporate N N Y N N N Y Y N Y
financing

Asset Y N N N N N Y N N N
financing

On-line Y Y N Y Y Y Y N Y N

Debt Y Y Y Y Y N Y N Y N
market

Investment N N Y N N N N N N N
banking

Mergers N N Y N N N N N N N

In the above grid, various companies operating in brokerage sector has been taken which helps in
contributing to make it an industry. Along with the companies list of products have been taken
which are offered by different company. On Y-axis list of products has been taken and on X-axis
list of companies has been taken in order to study which product is being offered by which
company. In other words, comparison between the companies has been done on the basis of
products offered by them which help in establishing one firm distinct from other.

Therefore, while comparing different companies on the basis of their product basket or product
portfolio we have seen that Equities and Derivatives are two main products offered by each and
every firm in this industry in our country. Apart from this there are huge difference among the
firms in their product offerings as there are few products which are being offered by one
company only whereas, there are few which are offered by many firms. In the list of 33 different
products, Karvy offers 21 products to its customers reaching on top in our analysis whereas,
Share Khan Limited offers only 10 products and remains at the last position.
 Global scenario
RECENT DEVELOPMENTS IN THE GLOBAL SECURITIES MARKETS

• Equalization
• Institutional investment
• International listings
• Emerging markets as an investment destination
• Alternative markets
• Growth of Derivatives
• Private Equity
• Hedge Funds

Source: MSCI Barra

Stock Performance: Developed Markets (% change)
Markets Jan-Dec 2007 Jan 2008

USA 4.09 -10.85

Canada 27.57 -11.75

Japan -5.42 -13.63

Hongkong 37.48 -18.39

Australia 25.01 -19.06

Singapore 23.91 -16.96

UK 4.72 -12.35

Switzerland 3.87 -9.11

Spain 20.67 -15.88

Italy 2.67 -10.72

Greece 29.23 -16.23

Germany 32.52 -16.29

France 10.92 -13.88

Top Ten Alternative Markets: New Capital Raised

(Including IPOs and Secondary Public Offerings)

Exchange Name of the Alternative New Capital Raised in USD

 Market mn

2006 2005

London Stock Exchange AIM 29055 16213

TSX Group TSX Venture 7117 4796

Korea Exchange KOSDAQ 1279 1105

Irish Stock Exchange Irish Enterprise Exchange 1189 164

Hong Kong Exchanges GEM 1095 392

Borsa Italiana Mercato Expandi 973 205

Osaka Stock Exchange New Market “Herculus” 786 1123

Tokyo Stock Exchange Mothers 652 1480

Euronext Alternext 642 169

Warsaw Stock Exchange SiTech 337 47

Surge in Chinese capital markets

A major change in the year 2007 was the sudden leap of China into big league of global stock
markets.

• On 9 May 07, Shanghai Stock Exchange, China’s top stock market, recorded turnover of
USD33.2 bn and Shenzhen Stock Exchange, a stock market for SMEs, an equally
powerful USD15.8 bn, taking the combined turnover of both these stock exchanges on
that day to USD49.5 bn.
• In the first three months of the year 2007, value of share trading in both these Chinese
stock markets reached 89% of the whole turnover of the year 2006. Value of share
trading in Shanghai Stock Exchange rose from USD256 bn in 2003 to USD736 bn in
2006 and in the first three months of the year 2007, it already recorded USD652 bn.
• Market capitalisation in China between Apr 2006 and 2007 rose by almost 4 times,
pushing it to a position among the top 10 exchanges in the world and value of share
turnover rose 6 times making Shanghai 6 the biggest.
• Main indexes of Shanghai Stock Exchange and Shenzhen Stock Exchange posted returns
of 194% and 204% respectively in 2007.
Stock exchange consolidation

A big wave of stock exchange consolidation is taking place across the global financial markets.

• The most notable merger in the recent period is that of the New York Stock Exchange
with Archipelago that led to the demutualization of the former, which subsequently
acquired Euronext to form, NYSE Group that makes it a formidable force in the North
America and the Euro region.
• Another American exchange NASDAQ after the merger with Instinet, announced plans
to acquire OMX, which is Europe’s leading exchange as also provider of cutting edge
technology solutions for stock exchanges worldwide. Deutsche Borse’s recent acquisition
of International Securities Exchange gives the former a powerful position in the
derivatives markets in Europe and America.
• There was also sizeable consolidation within the domestic securities markets in several
countries with the merger of equities and derivatives markets in countries such as Korea,
Malaysia, and Hong Kong.
• In India, the issue of appropriate solutions for the 20 odd stock exchanges that currently
lack proper liquidity is engaging the attention of policy and regulation.

RECENT DEVELOPMENTS GOVERNING REGULATION OF STOCK MARKETS

Systematic and streamlined regulation is the key strength and sustainability of the securities
markets. Though formal regulation of the securities markets is about 70 years old, some of the
recent developments in the financial markets are reshaping the scope and focus of the regulation.
These include -

• There is growing harmonisation of regulation across different markets. Organisations

such as International Organisation for Securities Commissions (IOSCO) are playing a
very important role in adoption of uniform principles and guidelines across the markets.
• The size and scope of the securities markets is rapidly changing from being one or two
product markets to multi product markets with diverse features and different investor
base.
• Markets have become more democratized with more people and institutions participating
in the market related activities.
• Rapid increase in the size of the institutional participation in the financial markets. For
instance equity markets, which in the past were retail investor driven, are now
increasingly become institutional induced.
• Securities markets are transforming from being membership driven to public corporation
following demutualization and corporatisation of stock exchanges in mature and
emerging markets.
• Two most important pieces of regulation that came into being in the recent period are in
the form of market structure reforms in the US, known more popularly as regulation
NMS, which underlines the promotion of competition across the markets under three
major principles; best price, open access and transparency. Under the new trade-through
role, in whichever market a customer placed his order, it should be able to access the best
 price that is immediately and automatically available anywhere in the national market
system.
• The trade-through rule will not allow markets to ignore better priced automated quotes
displayed by the competitors. Similarly, open access to displayed prices will be a major
feature governing the competition of the markets. The regulation also stipulates that all
significant markets must display their quotations and trade reports should be available to
all interested parties on fair terms and non discriminatory manner.
• Another equally important development is the Markets in Financial Industry Directive
(MiFiD) that will come into force from 1 Nov, 2007 and stipulates wide ranging norms
for financial institutions in the European Union. Major features of the MiFiD include
wider scope of coverage of the financial institutions and the related business activities,
greater degree of harmonization across the European markets and facilitate cross border
business and stipulated capital requirements.
 PORTER’S FIVE FORCES

Porter's five forces analysis is a framework for the industry analysis and business strategy
development developed by Michael E. Porter of Harvard Business School in 1979. It uses
concepts developed in Industrial Organization (IO) economics to derive five forces which
determine the competitive intensity and therefore attractiveness of a market. Attractiveness in
this context refers to the overall industry profitability. An "unattractive" industry is one where
the combination of forces acts to drive down overall profitability. A very unattractive industry
would be one approaching "pure competition".

Porter referred to these forces as the micro environment, to contrast it with the more general term
macro environment. They consist of those forces close to a company that affect its ability to
serve its customers and make a profit. A change in any of the forces normally requires a
company to re-assess the marketplace. The overall industry attractiveness does not imply that
every firm in the industry will return the same profitability. Firms are able to apply their core
competences, business model or network to achieve a profit above the industry average.
 1. The threat of substitute products

The existence of close substitute products increases the propensity of customers to switch to
alternatives in response to price increases (high elasticity of demand).

2. The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms. This results in many new entrants,
which will effectively decrease profitability. Unless the entry of new firms can be blocked by
incumbents, the profit rate will fall towards a competitive level (perfect competition).

3. The intensity of competitive rivalry

For most industries, this is the major determinant of the competitiveness of the industry.
Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions
such as innovation, marketing, etc.

4. The bargaining power of customers

Also described as the market of outputs. The ability of customers to put the firm under pressure
and it also affects the customer's sensitivity to price changes.

5. The bargaining power of suppliers

Also described as market of inputs. Suppliers of raw materials, components, labor, and services
(such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to
work with the firm, or e.g. charge excessively high prices for unique resources.
The five forces model relevant to the Indian brokerage industry

The Bargaining Power Of Customers

• Lack of Expertise Curtails Bargaining Power

• Retail investors often lack the knowledge and expertise in the financial sector that calls
them to approach the broking houses.

• Low Product Differentiation Proves Beneficial

The retail broking services provided by the various companies is homogeneous with very low
product differentiation. This allows customers to enjoy a greater bargaining power.

The Bargaining Power Of Suppliers

• Increased Dependence on IPOs

There is a growing dependence of corporates on broking houses with the rising number of
IPO’s coming to the market.

The Intensity Of Competitive Rivalry

• Move towards consolidation

Lot of brokerage companies are moving towards consolidation with the smaller ones
becoming either franchisees for the larger brokers or closing operations.

• Increased Focus of Banks in Retail Broking

Various foreign banks like ABN Amro and others are planning to enter the Indian retail
brokerage industry.

• Online Trading Competes with Traditional Brokerage

There is an increasing demand for online trading due to consumer’s growing preference for
internet as compared to approaching the brokers.

Threat of New Entrants

• Entry of Foreign Players

New forms of trading including T+2 settlement system, dematerialization etc are
strengthening the retail brokerage market and attracting foreign companies to enter the Indian
industry.

The Threat Of Substitute Products

• Alternative Investment Options
Various alternative forms of investment including fixed deposits with banks and post offices
etc act as substitutes to retail broking products and services.

• Now even various banks provide similar type of services. They also give the same service of
portfolio management and wealth management.

SWOT ANALYSIS ON BROKERAGE INDUSTRY

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position of a business and
its environment.

Low penetration of non banking financial services in India.

INFERENCE: Low penetration offers tremendous growth opportunity
STRENGTHS
• Multiples engines of growth- an
integrated financial services platform
• Well established and continuously
expanding geographical footprints
• Unique, stable and scalable business
model
• Adoption of technology — screen-
based trading, electronic matching, and
paperless securities
• Centralized operations, effective risk
management, and control on large
interconnected operations spanning
multiple locations, which is enabled by
telecom connectivity and low costs
• Accessibility of capital increases and
margin finance increases
WEAKNESSES
• Lack of visible goodwill among minor
players
• Lack of trust on companies by
customers
• Psyche of people in India is converging
• Companies are still running on selling
concept
• Weak infrastructural facilities
• Compliance with strict rules and norms
set by govt.
 OPPORTUNITIES
• Structure of the industry, market size,
and growth rates-huge potential in
Indian market
• Government is continuously
liberalizing the market
• Proactive and progressive nature of
Indian brokerage industry(India ranks
amongst top five globally in this
segment)
• Economy is still growing at healthy rate
leading to investment / capital
requirement
• Huge market opportunity for wealth
management service providers as
Indian wealth management business is
transforming from mere wealth
safeguarding to growing wealth.
• Leveraging technology to enable best
practices and processes
• Corporates looking at consolidation /
acquisitions / restructuring opens out
opportunities for the corporate advisory
business.
THREATS
• High degree competition
• Fluctuations in government policies
• Political framework
• Developing Indian economy
• Companies must develop and
implement physical, administrative and
technical safeguards to achieve the
following
goals:
o Ensure the security and
confidentiality of customer
records and information
o Secure against any anticipated
threats or hazards to the security
or integrity of such information
o Secure against unauthorized
access to or use of such
information that could result in
substantial harm or
inconvenience to any customer
• Corporate espionage